Obama Plan Would Reduce Charitable Deduction for Some Wealthy Donors

Feb. 26, 2009, Chronicle of Philanthropy— President Obama today proposed to cap the rate that high-income taxpayers can use to claim charitable deductions as part of a plan to finance changes to the country’s health-care system.

In a document outlining his 2010 budget plans, the president proposes to limit the tax rate for itemized deductions at 28 percent for families making more than $250,000.

That would reduce by as much as 20 percent the amount wealthy taxpayers could reduce their federal tax payments for charitable donations. Under the current system, taxpayers who are in the 33 percent or 35 percent tax brackets use that rate to claim deductions.

The proposal would raise $318-billion over 10 years, the plan says. That money would help pay for a 10-year $630-billion reserve fund designed to help make health care more affordable and available.

“With this budget, we are making a historic commitment to comprehensive health-care reform,” President Obama told a news conference. “It’s a step that will not only make families healthier and companies more competitive, but over the long term it will also help us bring down our deficit.”

‘Rebalance the Tax Code’
The proposal to limit the itemized-deduction rate is included in a package of measures designed to free up money for the reserve fund, including reducing Medicare overpayments, cutting drug prices, and improving post-hospitalization care as a way to reduce readmissions.

The plan is an effort to “rebalance the tax code so that the wealthiest pay more,” the document says.

But the idea is raising concerns in the nonprofit world.

Sheldon Steinbach, a lawyer in Washington who represents colleges and universities, said the proposal comes at a time when many nonprofit groups are already facing decreased resources. As a result, the plan could have drastic consequences for many groups.